By Jeremy Gough
The impressive growth of hot coffee sales through convenience is continuing to play a leading role in helping stores maintain profitability in an often challenging trading environment.
With long-term declines in such crucially important categories as tobacco hitting bottom lines, many operators have sought to build up their hot food and hot beverage offering …with impressive results.
The 2019 State of the Industry report from the Australasian Association of Convenience Stores (AACS) shows the basket penetration of both beverages and food has continued to flourish, with beverages now represented in more than 70% of baskets. The data shows the hot beverage category is the fastest growing category in convenience for the third year running and is now worth more than $300 million.
When executed well, the introduction of a quality coffee offer will typically deliver value across multiple categories. Besides the coffee sales themselves, the category will commonly trigger growth in companion products such as fresh food, bakery and snacks. There can also be an increase in forecourt traffic which has a positive flow-on effect for other categories such as fuel sales and tobacco.
With food in particular, good management and good planning can make all the difference in boosting basket size.
The AACS says that hot beverage shoppers typically buy 3.7 times per week and those who prefer to get their caffeine fix from convenience stores do so every two days.
Most coffee is sold during the morning period, with up to 70% of coffee sales occurring before 11am in convenience. Mornings see tradies, people commuting to work, students and parents doing school runs pop in for their morning brew. As the day progresses, stores generally see commercial travelers, taxi drivers, delivery drivers and regulars coming back for their afternoon pick-me-up. Another key afternoon group is parents on their way home from picking up the kids, who often grab a coffee and a treat for the children.
The potential then is clear, but this is a category which requires careful management. There is no ‘one size fits all’ solution when it comes to developing a convenience coffee offer. There are many factors that play a part in the success of an outlet, including location, site access/parking and the proximity to competitors.
What is important everywhere though is an understanding that Australian coffee consumers have quite a sophisticated palate. While there has been coffee growth on the back of competitive pricing, shoppers continue to call out quality as the main reason for purchasing hot coffee from the convenience channel. It is the operators who focus on quality and consistency for their coffee and food offer that have seen the most significant year on year sales growth.
Roasting Warehouse Specialty Coffee is a company that offers a national capability for supply chain, equipment sales and servicing and barista training.
The company’s national business development manager, Anthony Warthold, said that there are two moments of truth in retail.
“The first is when someone chooses your product or service and the second is when they use your product or service,” he said. “When it comes to coffee, the second moment of truth is vitally important … operators can build an amazing coffee and food offer, but if they don’t deliver on taste, quality and value, it’s unlikely they will get repeat business.”
Similarly, Suntory Coffee – which provides a full suite of products including award-winning fresh coffee blends, barista equipment, a team of service technicians and a team of in-house barista trainers – says any investment in a coffee offer needs to be very purposeful and set up specific to a site’s growth objectives.
“There is a common misconception that simply putting in a coffee offer will lead to sales,” said Suntory Coffee’s group customer manager, Steve O’Shea. “A lot of investment, hard work and passion is involved to make it a truly successful and sustainable offer.”
The company says that consumers now know that cafés aren’t the only place they can get a great quality coffee on the go, and this helps stores get customers in the door and opens up the opportunity to upsell them and build loyalty.
“In recent years we have seen the convenience and impulse channels steadily increase their investment in coffee and a big focus of this has been on improving quality,” said Mr O’Shea. “Whilst we can’t forget about price, we know consumers primarily focus on quality and taste when choosing a coffee destination.”
Melitta Professional Coffee Solutions Australia – which offers branded products including coffee and consumables, coffee machines, and after-sales service – says the type and brand of machine used to make the store’s coffee is critical.
With convenience stores often operating long hours with limited staff, the company’s managing director, Justin Rejske, says high-quality, fully automatic machines are very popular in the channel.
“Fully automatic self-service coffee machines are highly desired by our convenience store customers due to their high quality, consistency and ease of use: not only for the consumer but also the staff,” he said. “The advantages of a fully automatic coffee machine mean staff just need to keep the hoppers filled with fresh milk, coffee beans and chocolate powder, then consumers have the choice to dispense a large assortment of high quality products. Finally it’s then only a matter inserting a cleaning tablet for daily maintenance.”
Barista coffee offers tend to work best in high-volume sites located on main roads or near busy shopping precincts. For many convenience stores, space is also a major consideration and, in smaller outlets, a barista coffee offer just isn’t achievable.
In making their hot beverage machine decision, stores then need to look at their budgets, consider ongoing operational costs, analyse their bench space, and plan for who will be looking after the area.
Most new coffee machines are extremely easy to use and maintain, and staff are generally given full operational and cleaning instructions by suppliers. At a minimum, staff must be able to troubleshoot simple, straightforward fixes, carry out regular cleaning and handle things like milk refills or spills.
Keeping the coffee work station clean is vitally important, not only to make it more appealing to consumers and encourage sales, but also from a food safety perspective.
Roasting Warehouse Specialty Coffee says that most sites will require a preventative maintenance service on the coffee machine and grinder at least twice per annum, however this is dependent on volumes. Other areas where customers will congregate, such as condiments stations, tables/benches need to be maintained and kept clean and tidy. It says push button coffee machines can become quite messy very quickly, so it’s important to pay special attention to those areas, especially during busy morning trading.
While attracting customers through the door with the promise of a quality offer is a great first step, it is only half the battle. Good coffee is a major drawcard during the morning rush, where coffee is commonly bought alongside typical convenience type breakfast products like doughnuts, muffins, sandwiches and bottled water. During other day parts, such as lunch or afternoon snack time, the complementary co-purchase of choice becomes more like pies, sausage rolls, and confectionery.
However, it is important for stores not to ‘overdo’ it. Melitta’s Justin Rejske says that ‘less is more’ in terms product position near the coffee machine.
“Don’t overcrowd the area but focus on the real co-purchase opportunities,” he said. “Also think about the travel path from the coffee machine to the cash register, every step along the way presents a sales opportunity.”
In the petrol and convenience space when point of sale material is everywhere, stores can easily become cluttered with far too many messages. A cleaner outlook with clear value propositions is often a better approach to engage consumers.
Mr Rejske says many of Melitta’s chained convenience store customers have achieved exceptional sales results by creating appealing, well-lit and dedicated coffee spaces.
“If a coffee machine can be seen from outside the store or when entering the front door, then point of sale material isn’t critical,” he said. “However, if the coffee machines isn’t visible, point of sale becomes an important tool in capturing the attention of consumers.”
Store operators should try various promotional activities and track the results to see which campaigns are more successful than others.
Anthony Warthold from Roasting Warehouse Specialty Coffee says bundling coffee with food is a proven method of enticing consumers to trade up.
“Things like breakfast combos are a good way to increase basket size during busy trading periods such as the morning rush,” he said. “Loyalty programs are also a good way to reward loyal customers for their patronage and are generally well received.”
Another option is to surprise consumers by providing a small item with their coffee at no charge, such as a bite-sized cookie. The customer appreciation of this small item and the perception of value can ensure repeat visits.
Consumers are used to ‘upselling’ in petrol and convenience outlets so staff mentioning things like a coffee loyalty program, or a combo with food items can be highly effective.
The AACS state of the industry reports that hot beverages visit frequency is the strongest of any category and sits at 32% above the channel average. This indicates the strength of the category in driving foot traffic and shows why coffee will continue to have a growing impact on the look, feel and profitability of convenience stores up and down the country.
* Convenience & Impulse Retailing magazine would like to thank Suntory Coffee, Melitta Professional Coffee Solutions, and Roasting Warehouse Specialty Coffee for supplying information for this article.
AT A GLANCE
- Hot beverage shoppers typically buy 3.7times per week, and those who prefer coffee from convenience channels visit once every two days.
- While stores can’t forget about price, consumers primarily focus on quality and taste when choosing a coffee destination.
- Bundling coffee with food is a proven method of enticing consumers to trade up.
- Most coffee is sold during the morning period, with up to 70% of coffee sales occurring before 11am in convenience.